Refinery closures raise questions about energy

Clancy Yeates

Shell's move to put its Geelong oil refinery on the auction block has again brought to the fore questions on energy security.

With dwindling refining capacity, how would Australia cope if petrol supplies were suddenly cut off by a war, natural disaster or other catastrophe?

It seems alarmist, but these are the types of questions raised by the steady decline in domestic refining - the trend that caused Shell on Thursday to put its Geelong refinery up for sale, with the option to close it if a buyer is not found.

A decade ago, Australia exported more liquid fuels, such as petrol and jet fuel, than it imported. Thanks to fierce competition from cheaper ''mega refineries'' in Asia, this is no longer the case.

Advertisement

Shell last year closed its Clyde refinery, and Caltex will close its Kurnell refinery next year.

Once the closures are complete next year Australia's capacity will have been reduced by 28 per cent and slightly more than half of our fuel will be refined domestically. If Shell also closes the Geelong plant, this would be cut by another fifth.

To some, the situation is a big concern. The Australian Workers' Union told a parliamentary inquiry that relying on Asian refineries was ''highly questionable, as these Asian refiners may be unsustainable - and cut off from global supply chains of crude oil''.

However, policymakers bluntly reject calls for greater energy self-sufficiency. Put simply, economists argue we should specialise in the types of energy production in which Australian companies can compete globally. Unfortunately, the oil refineries closed in recent years did not fit this bill.

The House of Representatives economics committee last year found oil refiners were at a ''competitive disadvantage,'' because of ageing plants, higher operating costs, inadequate infrastructure and the high Australian dollar.

Yet, it said, recent closures did not compromise energy security, because the rapid growth in refining in Asia meant oversupply was likely for years to come.

A dwindling refining industry also has little impact on consumers. The retail price of petrol is set by the cost of imported oil, so the consumer watchdog is confident that prices are not affected by refinery closures.

The alternative to allowing refineries to collapse would be some form of taxpayer support for the industry. But, as shown by experience with car producers, such policies often lead to never-ending demands for funding. Perversely, government support could also undermine the incentive to invest in alternative energy.